The Russian housing market hasn’t recovered - despite appearances. Resale apartment prices rose 3.79% during the year to end-Q2 2011, according to the Federal State Statistics Service, but the kicker was inflation - resale apartment prices actually fell 5.25% when the price figures are adjusted for inflation.
• In Moscow resale apartment prices fell 5.38%, after inflation.
• In St. Petersburg resale apartment prices fell 15.23%, after inflation.
Rents are also declining. In March 2011, the average Moscow rent fell 2.7% y-o-y to RUB207,582 (US$6,439) per month, according to Knight Frank.
Moscow Mayor Sergey Sobyanin imposed a ban on residential construction inside the Third Transport Ring, the main access road to the capital’s business centre. As a result, new housing supply contracted by 18.1% y-o-y to H1 2011.
Russia had a massive housing boom from 2000 to 2007, with secondary market prices skyrocketing by 436% while primary market prices rose 362%. Property prices started to weaken in late-2008, and began falling in the second quarter of 2009.
House prices are still declining, though the rate of decline began to slow in 2H of 2010.
According to the Land Code of 2001, private ownership of land properties is allowed for both locals and foreigners. The legislation was extended to Moscow in January 2006.
• In Moscow resale apartment prices fell 5.38%, after inflation.
• In St. Petersburg resale apartment prices fell 15.23%, after inflation.
Rents are also declining. In March 2011, the average Moscow rent fell 2.7% y-o-y to RUB207,582 (US$6,439) per month, according to Knight Frank.
Moscow Mayor Sergey Sobyanin imposed a ban on residential construction inside the Third Transport Ring, the main access road to the capital’s business centre. As a result, new housing supply contracted by 18.1% y-o-y to H1 2011.
Russia had a massive housing boom from 2000 to 2007, with secondary market prices skyrocketing by 436% while primary market prices rose 362%. Property prices started to weaken in late-2008, and began falling in the second quarter of 2009.House prices are still declining, though the rate of decline began to slow in 2H of 2010.
According to the Land Code of 2001, private ownership of land properties is allowed for both locals and foreigners. The legislation was extended to Moscow in January 2006.
Analysis of Russia Residential Property Market »
RENTAL YIELDS
Last Updated: Jun 24, 2011
The enormous price-rises over the past few years in Moscow mean that it now makes better sense, in Russia’s capital city, to rent than to buy - at least so far as concerns the high-end district central Moscow apartments which the Global Property Guide tracks.
Gross rental yields on central Moscow apartments are firmly in the 3% to 4% range, which is not very attractive to property investors (but attractive to renters, of course). This is the result of the boom in prices of the last few years.
Surprisingly, St Petersburg still has highly attractive gross rental yields on smaller apartments, with 60 square metre apartments averaging around 9.4%. We stress that these yields are gross, i.e., before vacancies, costs, or any other expenses, and that they are based on offered prices, not actually achieved prices. They also concern old or refurbished apartments, not new apartments.
Gross rental yields on central Moscow apartments are firmly in the 3% to 4% range, which is not very attractive to property investors (but attractive to renters, of course). This is the result of the boom in prices of the last few years.
Surprisingly, St Petersburg still has highly attractive gross rental yields on smaller apartments, with 60 square metre apartments averaging around 9.4%. We stress that these yields are gross, i.e., before vacancies, costs, or any other expenses, and that they are based on offered prices, not actually achieved prices. They also concern old or refurbished apartments, not new apartments.
TAXES AND COSTS
Last Updated: Aug 08, 2011
Rental Income: Rental income for nonresidents is taxed at the flat rate of 30%.
The rental income of foreign legal entities without a permanent establishment in Russia is subject to withholding tax, levied on gross rentals at 20%.
Effective Tax Rate on Rental Income | |||
| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 30% | 30% | 30% |
| Click here to see a worked example | |||
| Source: PWC Disclaimer | |||
Capital Gains: Capital gainsrealized by nonresidents for selling Russian property are taxed at a flat rate of 30%.
Effective Tax Rate on Capital Gains | ||
| Property Value | €25,000 | €2 million |
| Tax Rate | 60% | 60% |
| Click here to see a worked example | ||
| Source: PWC Disclaimer | ||
Inheritance:There are no inheritance taxes in Russia.Residents: Residents are taxed on their worldwide income at a flat rate of 13%.
BUYING GUIDE
Last Updated: May 14, 2007
According to Global Property Guide research, total roundtrip costs are between 20% and 25.5% of the property value, among the highest in Europe. Bulk of the cost goes to VAT at 18%. Brokerage fees amount to 2% for properties more than US$2 million, otherwise the fee is 5%. The buyer should be cautious when buying unfinished units.
LANDLORD AND TENANT
Last Updated: Nov 13, 2006
Russia’s rental market is pro-tenant.Rents: Rent is by agreement between the parties. However, rents can only be adjusted after one year.
Tenant Security: The tenant can only be evicted after non-payment of rent for six months. However, the tenant is given up to a year to amend the violation. The tenant can also cancel the contract anytime simply by giving a three months’ notice.
ECONOMIC GROWTH
Last Updated: Sep 30, 2011
Robust economic growth continues
Russia is the world’s largest country, with a land area greater than the rest of Europe and USA combined. Although the population has been declining slightly, at 142 million in 2007, Russia is the world’s sixth most populous country. Russia’s GDP is projected to grow by 4.2% In 2011. The country had fallen deep into recession in 2009, with GDP contracting 7.9%, after global energy prices had dropped. It was Russia’s deepest recession in 15 years, after robust economic growth from 1999 to 2008 (average GDP growth of 6.8% p.a.) thanks to booming energy and commodities revenues.
The economy has recovered quickly, with GDP growth of 4% in 2010. Unemployment never became a serious problem, and today is around 7.3%. Higher oil prices are spurring economic growth, according to the IMF. Russia has the world's largest natural gas reserves, the 2nd largest coal reserves and the world’s 8th largest oil reserves. It is the world's leading natural gas exporter and the second leading oil exporter. In 2007, it was the world’s top oil producer, overtaking Saudi Arabia.
Russia also has huge amounts of mineral reserves including platinum, nickel, aluminum, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget.
In May 2011, the country’s inflation rate was 9.6%, up from 6.8% In 2010. In February 2011, the central bank raised the refinancing rate to 8%, from a historic low of 7.75%, to curb inflationary pressures.
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